Need Of Outsourcing

The need of Outsourcing can be defined with the following way:

(i) Cost Reduction:

Cost Reduction has been the predominant motive for outsourcing, a make-or-buy decision that is largely addressed through accounting information. The expectation that outsourcing will cut costs is consistent with the strategic management view of competitive resource allocation. Outsourcing decisions commonly target a minimum of 15% cost saving, sometimes it is in the range of 20-25%.

(ii) Need for Specialized Expertise:

In principle, outsourcing can provide “best-in-the-world” quality for specific activities or components.

(iii) Increased Flexibility to Manage the Business:

Outsourcing presents organizations with the opportunity to avoid the constraints of their own productive capacity in meeting changes in the volume of sales. Outsourcing HR also enables executives to cope with time-sensitive issues and competing demands.

(iv) Lowering of Rigidity and Cultural Change:

Another rationale is to develop less bureaucratic departments, which are often criticized for the constraints they impose on operational flexibility. Because of their size and focus, outsourcing firms are often more agile, and can deliver services more quickly than in-house HR staff.

(v) Technological Changes:

For a business to develop and sustain competitive advantage, it requires access to appropriate technologies, and often the ability to benefit from them. The development of technologies can be expensive.